In any democratic country, politics is bound to be less stable from time to time as new leaders are voted in office. If not separated, the instability of politics is extended to the financial sector. Politicians have different perspective which changes from time to time. The central bank cannot afford to make such decision reversals as it is too sensitive to such changes in the economy.
A central bank occupies an apex position in any financial system in terms of its activities and areas of responsibility. It controls the most sensitive sector and it should be separated from politics. Its performances have a positive linear relationship with the economic prosperity, which means our economy’s failure is directly linked to the RBZ failures.
How is the economy of Zimbabwe supposed to prosper, if the speculated USD 15 Billion worth of diamonds can disappear without an open trace under the noses of the central bank? This amount is almost equal to the nation’s Gross domestic product. This is over R150 Billion South African Rand that can revive the economy without compromising the ‘indigenization policies’ yet, not even a single individual has been arrested. As we are approaching the elections, there are rumors of discrediting the sources that exposed the $15 billion scandal. It was first reported by politicians and they change their opinions as and when it suits their poll numbers. It is almost impossible for huge amounts of money to be laundered when regulators like central banks can extend their legal mandate to monitor financial transactions to ensure the stability in the sector. The central bank can fail to do so, if it is a non-autonomous entity, run not only for the benefit of the economy but for those in power. How much confidence in the economy, is lost to scum bags that wear sheep skin, pose as saints, to gain power they misuse for personal gain?
In November last year when the country was in short of foreign currency, it was reported that the government confiscated USD millions of hard cash from some of the then, cabinet ministers, the military termed ‘criminals’ who surrounded the former president . This was only triggered by the change in power which saw the former president of Zimbabwe R.G.Mugabe resign. If these people could hide millions of hard cash in plain sight, should we blame the money laundering monitors or those who control them in politics? How can one condemn his employer? Had the RBZ noticed the abnormalities in the streams of hard cash their bosses could have been transacting? A central bank acts as a banker and an advisor to the government for the benefit of the economy, but if the government is corrupt, only an autonomous entity can disclose these criminal acts.
What made the RBZ to fail in forecasting the past failures that could have been averted? The governor is the head of the RBZ. He is appointed by the minister of finance on the basis of his competence in matters that have to do with economics, finance etc. The cabinet ministers however, are appointed by the president, mostly for their expertise in politics. For example, previously, a lawyer had been appointed ‘the minister of finance’. Not to undermine the capabilities of specific individuals in terms of multi-tasking but an expert in a certain field of study usually performs better in their field. The finance sector should be spear headed by an expert in the sector.
The RBZ approved the indigenization policy, which is theoretically sound to a layman especially coming from a politician. Those who are ‘naïve’, desire to give controlling ownership to a people who are too broke to earn that right. If we are to attract billions of dollars, how many investors are willing to hand over a controlling share to their host, without the incentive to do so? Zimbabwe is not the only promising investment destination in the world. Such policies do the opposite of attracting investors. Is this the only solution to Zimbabweans empowerment or a ploy by the politicians to win votes?
Indigenization was one of the biggest campaign strategies in the previous elections but as loud as it was, it accomplished winning votes more than what its blue print was intended for. When it comes to multimillion corporations, the locals can fail to inject that much in the acquisition of a controlling share. It is an incentive to the investors to gain control, hence makes the economy investor attractive.
The past two decades have seen our financial sector crumble, registered financial institutions liquidating and this has gone a long way in reducing the investors coming into the country. The number of registered micro-finance institutions reducing to 0 from over 100 at some point during hyperinflation. Even some of the commercial banks like Allied Bank, liquidating in which poor management, non-performing loans being most to blame.
Basel accord II was only adopted by most banks just before 2012. As a regulation, this is a risk management mechanism set by central bank to reduce financial institutions failure. The complexity of the accord and the lack of capital for most financial institutions may have led to the late introduction of the Basel accord II in Zimbabwe. The central bank has always come up with an alternative to mitigate this risk; however, some countries have adopted more sophisticated risk management measures. This has only been possible because their leaders have been smart enough to separate politics from the central bank. Foreign reserve banks such as the US Federal Reserve System, South African Reserve Bank and the Bank of England are good indicators of the advantages of minimum interference from politics.
Laissez faire; ‘let things proceed without interference’. As a rule of practical economic conduct, this theory was developed by Sir Adam Smith. This principle is expressed in the assertion that individuals are most productive in an autonomous environment with no external restrictions. The impracticality of the this theory has led to the adjustment of the theoretical views by the mathematicians and the economists, to whom, for the most part, advocated for at least the minimum interference to do away with autonomous extremes in the most elastic sector (financial sector) worldwide. “Allow the central bank to act as an autonomous entity, for the ‘game of politics’ favors even the non-optimal solutions”.
Student at National University of Science and Technology Banking and Investment Management ‘CBA-BIMP’ (in progress)
Tryson G. Dube
Today’s economic analysis